2005 (5) TMI 1 - AT - Service Tax

Waiver of the pre-deposit - Service Tax - Consulting Engineer - Taxability - Non-Resident - liability for violation of the Service Tax Rules and penalties - manufacture and marketing of medicaments - receipt of Technical know-how of patented process from the foreign company - HELD THAT - From a perusal of the list of services enumerated in the trade notice and the application of the principle of ejusdem generis would lead to the conclusion that transfer/licensing of know-how for the manufacture of a pharmaceutical product would not fall within any one or more discipline of engineering. The ld. Commissioner (Appeals) having clearly failed to appreciate this, it is submitted that the impugned order is without basis and deserves to be set aside. We find force in the agreements, the decision in the case of Tata Consultancy Service 2001 (4) TMI 1 - KARNATAKA HIGH COURT and M.N. Dastur Co. Ltd. 2001 (10) TMI 2 - CALCUTTA HIGH COURT relied by the ld. DR will not help the case only to bring Pfizer under the coverage of the term 'person', it will not cast a liability of Consulting Engineer or Engineering Services having been provided. The period of demand in this case is 1997 to 2001. The insertion of sub-clause (iv) in Rule 2(1)(d) of the Service Tax Rules vide Notification 12/2002, dt. 1-8-2002 providing that in relation to taxable services provided by a person who is a non-resident or is from out side India, then the person receiving the Service shall be liable. Therefore, the demands made and determined as a liability on the appellants and consequence of penalty interest etc. are required to be held as misdirected. After perusal of the agreement on finding that the admitted position is the receipt of Technical know-how of patented process from the foreign company and payments for the same and for the Royalty cannot be fastened with Service Tax Liability. No contrary decision or provision from the Agreement entered into was shown to arrive at or differ from the Tribunals decision. The grant, as per the terms of the Agreement, is of a Licence to manufacture, provide Technical assistance including Training and permits the availment of knowledge and expertise in connection with marketing management. Tribunal vide its decision in the case of M/s. Avial Chemicals Pvt. Ltd. 2004 (6) TMI 2 - CESTAT, NEW DELHI had not upheld the levy of Service Tax as a consulting engineer on such Licence Agreements and for such use. The other part of the agreement is as regards Management Service of Marketing etc. and cannot be called 'Consulting Engineering Service' under the Service Tax Provisions. When the definition of various services under the Service Tax provision is seen. Thus, the demands of Tax, interest and penalties cannot be upheld and are required to be set aside.

Summary

Issues:
Interpretation of Service Tax liability on payments made for technical know-how and royalties to a foreign company under Consulting Engineer Services.

Analysis:
1. The appellant, a company engaged in manufacturing medicaments, entered into an agreement with a foreign company to receive technical know-how and patents for pharmaceutical products, making payments for the same. The Department issued a notice for Service Tax liability on these payments.

2. The appellant argued that the foreign company cannot be considered an 'engineering firm' providing Consulting Engineer Services, as required under the Service Tax provisions. They highlighted that the agreement was for the transfer of know-how, not for consultancy services, citing various legal precedents and definitions of 'client' to support their case.

3. The Tribunal found that the foreign company, being a pharmaceutical company, did not fall under the category of an 'engineering firm' providing Consulting Engineer Services. The Tribunal also noted that the Service Tax Rules exempted liability in cases of services provided by non-residents, as in this situation.

4. Referring to previous decisions and analyzing the agreement, the Tribunal concluded that the payments made for technical know-how and royalties did not attract Service Tax liability under Consulting Engineer Services. The Tribunal held that the demands for Tax, interest, and penalties were not justified and ordered them to be set aside.

5. Ultimately, the Tribunal allowed the appeal, ruling in favor of the appellant and setting aside the demands for Service Tax, interest, and penalties related to the payments made for technical know-how and royalties to the foreign company.

This detailed analysis of the judgment showcases the legal intricacies involved in determining the Service Tax liability in transactions involving technical know-how and royalties, providing a comprehensive understanding of the case.